To understand how buyout firms continue to be outbid by cash-rich strategics, consider ITT Corp.’s deal for YSI.
ITT closed its acquisition of YSI in early September, after the deal was announced in July. Yellow Springs, Ohio-based YSI develops and makes sensors, instruments, software and data collection platforms used for environmental water monitoring. The company has about $300 million in annual revenue.
The YSI auction began in the first quarter and the company received about 20 first round bids, a source told sister Web site peHub. Several buyout firms, including
The process was narrowed to roughly a handful of bidders, both strategic and financial, by the spring. The end result? The buyout firms, some of which were offering 12x to 13x EBITDA, ended up losing and were outbid by strategics by “two to three turns,” a person said.
Sponsors were limited by leverage and the best deal was getting 5-6x total debt, the source said. “The valuation was too rich for private equity without an existing platform,” a second person said.
ITT Corp., a strategic, ended up winning the auction, paying $310 million or about 3.1x revenue. The deal is estimated to represent 14x to 18x 2010 EBITDA, according to a July research note from Michael Halloran, an analyst with R.W. Baird.
Joe Culley of Janney Montgomery Scott advised YSI while Thompson Hine provided legal advice. Evan Yellin of EuroConsult served as financial adviser to ITT. Sidley Austin was ITT’s attorney.
(Luisa Beltran is a senior writer for peHub.)